This post originally appeared on ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here. “BREAKING NEWS – Mastercard just demo’d a transaction on Polygon Technology paid for directly with credit card! Gas fees and all…” This is not a real long-term solution. It is a temporary solution, perhaps even necessary for the time being, but we must do better and can certainly do better.
The credit card system is the problem. What people don’t understand is that the credit card system is really a high interest short-term rolling debt/loan that is deceptively imposed on consumers.
I’m not talking about the apparent monthly interest rate charged by credit card companies on sustained card balances carried over with making only minimal payments, nor the late fees when failing to make the minimum payment.
I am talking about the regular credit card monthly balances that most consumers pay off entirely and timely. It may not feel like a loan with interest, but it really is. The way credit cards work, it is really an average 15-day short-term debt/loan the customer borrows from the credit card company.
But the consumer does not feel it is a loan, as no apparent interest is charged. The merchant, however, knows that there is a 3% fee for the transaction charged by the credit company. If you look at the entire economy as a whole, it is a 3% tax burden over more than $4 trillion annually in the U.S. alone.
My point, however, is not even about the 3% overall burden on the economy, but that there is really a hidden interest charged on the consumers, albeit indirectly. This is because ultimately it’s the consumers who bear the cost in terms of higher prices. The bulk of the credit card fees are transferred from merchants to consumers through the market.
